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DR.

RAM MANOHAR LOHIYA,


NATIONAL LAW UNIVERSITY, LUCKNOW
2016-2017

INTERNATIONAL TRADE LAW


[SYNOPSIS]
ON
DOES GSP VIOLATE MFN PRINCIPLE?
AND
ITS IMPACT ON DEVELOPING COUNTRIES

SUBMITTED FOR THE PROJECT WORK UNDERTAKEN IN THE PARTIAL


FULFILLMENT OF B.A. LL.B. (HONS.) 5 YEARS INTEGRATED COURSE OF
DR. RAM MANOHAR LOHIYA NLU, LUCKNOW

SUBMITTED TO: SUBMITTED BY:

MS. PRIYA ANURAGINI TANU SHRIVASTAVA

ASST. PROF., LAW ROLL NO.-144; SECTION-B

DR. RMLNLU, LUCKNOW BA.LLB. (H); SEMESTER- IV

TOPIC

Does GSP violate MFN Principle and its Impact on Developing Nations

INTRODUCTION
When the World Trade Organization (WTO) was founded 17 years ago on January 1, 1995,
commentators hailed it as a major transformation of the world trading system. The new, more
juristic and permanent World Trade Organization replaced the previous, ad hoc General
Agreement on Tariffs and Trade (GATT). Currently, the WTO has 157 members, accounting for
more than 90 percent of the world trade. More than three fourths of these members are
developing or least developed countries. The organization has four principal functions:
administering trade agreements, settling trade disputes, conducting trade policy reviews of its
members, and acting as a forum for trade negotiations. In addition, it provides technical
assistance to developing countries in the area of trade policy and also cooperates with other
multilateral agencies.

MFN PRINCIPLE

Central to the global trading system in goods is the unconditional most favored nation (MFN)
principle enshrined in Article I of GATT 1994. According to this provision, if country A grants a
concession to country B as a part of a bargain, it must automatically grant the same concession to
all other WTO members even if the latter offer no concession in return. Thus, a member country
must treat all WTO members at par with its most favored trading partner.

An immediate implication of this provision is that a country must charge the same tariff
rate on imports irrespective of its origin (leaving aside the possibility that the imports may have
come from a nonmember). If applied without exception, this provision has the virtue that it
ensures a single tariff rate on each product in a country. The resulting tariff regime is not only
transparent but also economically efficient from the global standpoint. Being entirely non-
discriminatory, it also gives least reason for political discord across trading partners.

GENERALIZED SYSTEM OF PREFERENCES

In 1968, UNCTAD recommended the creation of a Generalized System of Preferences under


which industrialized countries would grant autonomous trade preferences to all developing
countries. The Generalized System of Preferences (GSP) is a system that grants products
originating in developing countries lower tariff rates than those normally enjoyed under MFN
status as a special measure granted to developing countries in order to increase their export
earnings and to promote their development.

STATEMENT OF PURPOSE

While this paper is written as part of a study of the international GSP system, we cover free trade
agreements (FTAs) as well since the impact of GSP cannot be properly grasped without
comparing to the trade conditions under FTAs. If a large share of trade is covered by FTAs with
better market access than under GSP, this will obviously have a bearing on the impact of GSP. If
GSP turns out to be among the least generous regimes, too much of a trade-creating impact
should not be expected. We are interested in establishing this ranking, and to quantify the relative
difference between GSP and other trade preferences. For this purpose, the trade regimes of
developing countries will be analyzed.

RESEARCH QUESTIONS

1. The GSP systems may be classified in terms of - country coverage; how are non-
members of the WTO, and the more wealthy developing countries, treated?
2. Differentiation between beneficiaries; all countries give better terms for the LDCs but
also for some other countries.
3. What is the coverage and depth of tariff cuts;
4. Are there important exceptions and sensitive sectors?
5. mechanisms for graduation or withdrawal of concessions for the richer or more
competitive countries
6. What are the rules of origin and administrative barriers, and the extent of utilization of
the systems
7. What are the criteria for differentiation related to e.g. security, environmental standards,
labour standards etc.?

HYPOTHESIS
trade is the more important, as a percentage of GDP and as a source of welfare
improvement, the smaller the country concerned; and

(Preferences) are particularly important for vulnerable developing countries such as


island and land-locked countries, as export expansion are particularly important, but also
often particularly difficult, for them.

RESEARCH METHODOLOGY

The methodology will be strictly doctrinal in nature.

TENTATIVE CHAPTERIZATION

1. Introduction
2. MFN Principle
3. Generalized System of Preferences
4. Arrangements available for Beneficiary countries under the GSP by EU.
5. GSP vis--vis MFN
6. Impact of GSP on Developing Countries
7. Conclusion

BIBLIOGRAPHY

1. Ross Buckley, Vai Io Lo and Laurence Boulle (ed.), Challenges to Multilateral Trade;
The Impact of Bilateral and Preferential and Regional Agreements, (Wolters Kluwer law
& business publication 2008)

2. Chantal Thomas, Joel P. Trachtman, Developing Countries in the WTO legal System,
(Oxford University Press 2009)
3. William H. Cooper, Generalized System of Preferences, CRS Report for Congress
Congressional Research Service The Library of Congress.

4. Nellie Munin, Legal Guide to GATS, (Wolters Kluwer law & business publication 2010)

5. Stefan Tangermann, The Future of Preferential Trade Arrangements for Developing


Countries and the Current Round of WTO Negotiations on Agriculture, Sourced from <
http://www.fao.org/docrep/004/Y2732E/y2732e05.htm#bm05> accessed on 20th
September, 2016.

6. Vivian C. Jones, Generalized System of Preferences: Background and Renewal Debate,


April 9, 2012, CRS Report for Congress.

7. Biswajit Dhar and Abhik Majumdar, The India-EC GSP Dispute: The Issues and the
Process, the International Centre for trade and sustainable development Jakarta, Indonesia
25-26 January 2006, Sourced from < http://www.ictsd.org/downloads/2008/06/dhar.pdf>